Independent Directorship and Corporate Performance: Some Further Testing from the China Case

Jordan Shan,Jianhong Qi

doi:10.5539/mas.v1n4p22

Jordan Shan, Jianhong Qi

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https://doi.org/10.5539/mas.v1n4p22

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This study attempts to re-examine several hypotheses suggested by the literature concerning the relationship between corporate governance and corporate performance using the data from China. The findings of the paper suggest that corporate performance in China is mostly influenced by other economic variables, not by corporate governance and the hypotheses that corporate governance will have positive on corporate performance is not valid. This poses a question for China as to whether the current top-down approach to corporate governance (which is largely based on duplicating the Anglo-American model) will be effective in linking the firm performance and independent directorship.

Highlights

The relationship between corporate governance and corporate performance remains as one of the important topics in the literature of corporate governance
The roles played by an independent director in improving corporate governance and corporate performance can be seen, as argued by in the literature, through his supervision and monitoring of the company management, his consultancy and advice to provide help in new technology, marketing and other expertise; his political role and connections, which will promote the marketing of the company; his “buffer’ role to protect the interest of different groups between management, shareholders and the regulatory institutions; In particular, an independent director is expected to promote transparency and social morality of the company in complying reporting, accounting and disclosure requirements as set by the regulation
The results suggest the importance of large institutional shareholders in corporate governance, the inefficiency of state ownership, and potential problems in an overly dispersed ownership structure

Summary

Introduction

The relationship between corporate governance and corporate performance remains as one of the important topics in the literature of corporate governance. The roles played by an independent director in improving corporate governance and corporate performance can be seen, as argued by in the literature, through his supervision and monitoring of the company management (ie., to solve the so called “agency cost”), his consultancy and advice to provide help in new technology, marketing and other expertise; his political role and connections, which will promote the marketing of the company; his “buffer’ role to protect the interest of different groups between management, shareholders and the regulatory institutions; In particular, an independent director is expected to promote transparency and social morality of the company in complying reporting, accounting and disclosure requirements as set by the regulation. Further study from Bhagat and Black (1999) suggest there is no convincing evidence suggesting that greater independence results in better performance, but some evidence shows that firms with super-majority independent boards perform worse than others

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The Model and Findings

Concluding remarks